Confusing Choices?

The editorials and airwaves are filled with warnings that the new Medicare drug benefit is overwhelmingly confusing – certainly discouraging words for seniors who both want and need this new benefit.

Our advice: Don’t give up.

The Medicare website,, has been inundated with visitors (more than a million on Sunday alone), and the site is clearly a work in progress. The 1-800-MEDICARE phone lines also are swamped with seniors anxious to learn more and sign up.

Medicare Administrator Mark McClellan and his team are working feverishly to fix problems and expand capacity, but seniors have until May to sign up. So there’s time.

And about the confusion: The trade off for having choices of drug benefits is?having to make choices. It could have been simple: The government could have told seniors what they would pay and which drugs they would get – maybe your drugs would be on the drug list and maybe not. But as it is, they do have choices, with more plans participating in the benefit than anyone expected. Kudos to CMS for this!

And, miracle of miracles, seniors actually know their options and what’s covered by the different plans. That’s not what people are used to in our paternalistic health insurance market. Welcome to the future.

Seniors will have to narrow down their decisions to pick the plan that provides them the best deal, the lowest premium, and the greatest selection where they live. But with an average of 42 plans per region, it takes some work.

The site does requires web savviness to navigate, so when you are home visiting parents or grandparents over Thanksgiving (or Christmas), it would be a great time to sit down with them at a laptop to help decide whether and which plan to choose.

It’s worth it. The plans offering coverage are competing intensely for beneficiaries to sign up, and they are making the drug benefit even more attractive than the one outlined by Congress:

  • Zero premiums: Seniors in 44 states can pick a Medicare Advantage plan with no additional drug premium (instead of the $35 monthly fee estimated by Congress), and there is at least one plan with a $20 premium almost everywhere. Humana gets the prize for the lowest-priced drug plan, coming in at $1.87 a month in Iowa.

  • No deductibles: 58% of plans will have no deductible (instead of the $250 in the standard plan designed by Congress).

  • Filling the doughnut hole: One fourth of the Medicare Advantage plans and one sixth of all drug plans offer coverage in the dreaded doughnut hole (the standard plan doesn’t cover drug spending between $2,250 and $5,100).

How can anyone argue that private sector competition hasn’t come up with better options than the benefit plan Congress designed?

How have the plans been able to do this? Tough negotiations over drug prices, for starters. Some major drug companies are very upset because they have been shut out of formularies for the drug plans that wouldn’t or couldn’t offer low enough prices.

And the Medicare Advantage plans look more and more attractive all the time, offering integrated coverage at low prices.

So to our friends who are still criticizing MMA: Isn’t this what we were trying to accomplish all along? Having seniors pick from among competing private health plans that offer a full range of health services, including drugs? And having this supported by a defined contribution payment that follows the senior? Yes. And that’s the direction that this legislation is taking us!

(Our thanks to Christopher McFadden at Goldman Sachs for sharing a copy of his detailed and thorough investors report on the new drug benefit. It’s an excellent resource!)


Health Policy Matters will return after Thanksgiving. Have a wonderful holiday, celebrating our good fortune to live in a country that offers so much opportunity and freedom – and choice.

Grace-Marie Turner


  • Health Savings Accounts: Early estimates of national take-up
  • Bad medicine
  • Canadian drugs may not be as popular in future
  • The Senate Reconciliation Bill: Wrapping doctors in more Medicare red tape
  • California’s tax on health-care savings
  • The party of Sam’s Club: Isn’t it time the Republicans did something for their voters?

Authors: Roger Feldman, Stephen T. Parente, Jean Abraham, Jon B. Christianson, and Ruth Taylor
Source: Health Affairs, November/December 2005

Health Savings Accounts, in conjunction with refundable tax credits, could significantly reduce the number of uninsured, according to a new study from University of Minnesota researchers. Prof. Roger Feldman and colleagues conducted various simulations of how several potential tax subsidies for HSAs would affect consumer take-up. They estimated that the Bush administration’s refundable tax-credit proposals could double HSA adoption from their base estimate of 3.2 million to almost 7 million. “It could also reduce the number of uninsured people by 2.9 million at an annual cost of $8.1 billion. A second scenario of a low-income buy-in subsidy would reduce the number of uninsured people by 16.5% (or 4.5 million people) at a cost of $12.2 billion annually, or an average of $2,718 per person.”
Full text (subscription required):

Source: The New Yorker, 11/07/05

Atul Gawande, assistant professor of surgery at Harvard Medical School, discusses the costs and consequences of medical malpractice in an interview with The New Yorker. Gawande explains that the toll of malpractice on doctors is “hindering our ability to honestly address injuries to patients from complications” and suggests alternatives to the current litigious climate. For example, New Zealand and Sweden have seen success with a system that has created “a fund that provides money not only for medical expenses but also for lost income and even to some extent suffering from the injury.” (Dr. Gawande has a longer, excellent article loaded with stories of physicians’ malpractice experiences in the Nov. 14 issue, but it’s not available online.)
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Author: Brian Monroe
Source: Asbury Park Press, 11/13/05

The new Medicare drug plan and safety concerns are expected to reduce demands for prescription drugs imported from Canada, reports the Asbury Park Press. “To keep profits up, many of the Internet and mail-order pharmacies that claim they are based in Canada have brought in ‘international’ buying partners, meaning your prescription could be coming from the United Kingdom, Israel, Australia, Chile, South Korea or other countries,” writes the Park Press. Joe Bast, president of the Heartland Institute, believes this will put an end to the Canadian drug-importation business. “Most of the demand for imported drugs are [sic] from seniors, and that will be dramatically reduced” due to the drug program, said Bast. “The price difference is not as big, and people are saying it could be dangerous. I think the wind is out of the sails on drug importation.”
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Author: Richard Dolinar, M.D.
Source: The Heritage Foundation, 11/10/05

The Senate’s recent vote to create “values-based purchasing” or “pay for performance” rules for physicians “would establish, in effect, government guidelines for the practice of medicine and tie Medicare payment to physician compliance with those guidelines,” writes Richard Dolinar, an Arizona physician and scholar with the Heartland Institute. “The irony of the recent Senate action is that with all of the rhetoric on the importance of ‘evidence-based medicine,’ the Congress is posed to implement a Medicare ‘pay for performance’ system that is, in fact, short on evidence and pregnant with perverse incentives,” writes Dolinar. Congress should instead “reform the flawed physician payment system, which is driven by outdated administrative formulas, and introduce changes that reflect the real market conditions of supply and demand for medical services,” concludes Dolinar.
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Author: John R. Graham
Source: Pacific Research Institute, 11/13/05

New legislation enacted in California that levies a tax against health savings accounts “stalled an important improvement in individual health ownership,” writes John R. Graham of the Pacific Research Institute. Under the bill, contributions to an HSA remain taxable, and the earnings within the HSA will be taxed annually. For example, a California family of four earning about $50,000 that makes an HSA contribution of $5,000 and spends $2,000 on medical expenses annually “will immediately lose $372 to the tax man.” And if their remaining savings of $3,000 earn interest at 2%, the loss increases to $379 the following year, and $395 in the third year. “The reform train has left the station, and California lags behind,” concludes Graham. “If legislators want to catch up, they need to change the tax code to reward, not punish, those willing to take more responsibility for their own health spending.”
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Authors: Ross Douthat and Reihan Salam
Source: The Weekly Standard, 11/14/05

The Weekly Standard offers several new proposals for the next wave of conservatism on subjects including welfare reform, tax reform, and health care. “Republicans need to deliver a market-friendly health care reform, and simplify the current hodgepodge of command-and-control and laissez-faire,” writes the Standard. Conservatives should focus on driving down insurance costs which will enable them to “sever health care coverage from employment [and] will eliminate the gaps in coverage that occur when workers move from one job to the next.” Reform should also focus on measures against catastrophic expenditures. “Individuals can choose to pay for comprehensive coverage, but the responsibility of government should extend only to making sure that all Americans purchase a high deductible policy – rather than subsidizing gold-plated plans for upper-income Americans, which the current system often does.”
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Health Savings Accounts and Tax Subsidies: How Effective Can They Be?
AEI Health Policy Discussion
Friday, November 18, 2005, 2:00-4:00 p.m.
Washington, DC

For additional details and registration information, go to:

Healthy Competition
Cato Institute Book Forum
Tuesday, November 29, 2005, 4:00 PM (Reception to follow)
Washington, DC

For additional details and registration information, go to:

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